Personal Loan vs Mortgage Loan
A personal loan is unsecure and ideal for short-term needs, while a mortgage loan is secured by property. Comparing their features can help you choose the right option based on your financial situation and goals.
What are the Differences Between a Personal Loan and a Mortgage Loan?
The difference between personal loan and mortgage loan are given in the table below:
Feature | Personal Loan | Mortgage Loan |
Collateral | Unsecured (No collateral) | Secured (Property as collateral) |
Loan Amount | ₹50,000 – ₹40 Lakh | 60-80% of property value (Up to crores) |
Tenure | 1-7 years | Up to 30 years |
Interest Rate | 10%+ p.a. (Based on credit score & income) | Starts at 9% p.a. (Depends on property value) |
Processing Time | Fast (Minimal docs) | Slow (Extensive verification) |
Usage | Flexible (Medical, travel, debt, etc.) | Only for real estate |
Tax Benefits | None (Unless home renovation) | Yes (Sec 80C & 24) |
Credit Impact | High risk if unpaid | Improves score with timely EMI |
What is a Personal Loan?
Personal loans are unsecured and require no collateral. These loans are approved based on your credit score and history. Due to higher lender risk, interest rates are typically higher. These loans offer quick approval, flexible usage, and eliminate the risk of losing assets in case of default.
When to opt for a Personal Loan?
You should opt for a personal loan when you are in urgent need of funds without being involved in a lengthy documentation process.
Factors to Consider for Applying for a Personal Loan
The factors to consider for applying for a personal loan are mentioned below:
- Higher Interest Rates: Lenders charge more interest to offset the risk as personal loans are unsecure.
- Limited Loan Amounts: The loan amount is typically lower than secured loans and depends on your income and credit profile.
- Credit Score Matters: A strong credit score helps you secure better terms, while a low score may lead to rejection or costlier, smaller loans.
What is a Mortgage Loan?
Mortgage loans are secured loans where property is pledged as collateral, often for purchasing real estate or borrowing against existing property. They generally offer lower interest rates, higher loan amounts based on property value, and longer repayment tenures, making monthly payments more manageable.
When to opt for a Mortgage Loan?
A mortgage loan should be used when you are in need of funds at a low rate of interest but do not have any urgency in accessing the funds.
Factors to Consider for Applying for a Mortgage Loan
The factors to consider for applying for a mortgage loan are mentioned below:
- Collateral Needed: You must pledge property as security, and you may lose ownership of the property if you fail to repay the loan amount.
- Longer Approval Time: The approval time is longer than other loan types as the process includes detailed checks, such as property valuation and legal verification.
- Extensive Paperwork: The loan process involves submitting numerous documents about both the property and your financial background.
FAQs on Personal Loan vs Mortgage Loan
- What is the key difference between a personal loan and a mortgage loan?
A personal loan is unsecured and flexible, has short-term needs, whereas a mortgage is secured by property and is intended for financing expenses related to real estate.
- What is the formula for calculating monthly mortgage payments?
To calculate the monthly mortgage payment, use the formula: P (1+r)n/1r(1+r)n.
- Which option has faster approval?
Personal loans disburse quickly, sometimes within 24 to 48 hours due to minimal paperwork. While mortgages take more time to get approved due to property appraisal and legal documentation.
- Is collateral required?
No collateral is needed for personal loans; hence, these loans are not secured. While mortgage loans require you to pledge property, allowing lenders to foreclose if repayment fails.
- Can I use a mortgage loan for purposes other than buying a property?
Yes, a loan against property (LAP) is a type of mortgage loan where you borrow against owned property and use the funds for various purposes, such as business, education, etc.
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